Posted by : Randy Cooper in (CDN)

Does Limelight have a cost advantage over Akamai ?

 

Summary

Limelight networks entered the CDN scene in 2006. Limelight’s claim to fame is that it has built a next generation CDN that can deliver Media CDN services at a lower cost due to its “newer” technology.  Despite it’s claims of “newer” technology Limelight network has been embattled in a nasty IP patent lawsuit against Akamai technologies.

Is Limelight’s newer technology really unique and does it give Limelight a cost advantage in the market ?

Analysis

Content Delivery Networks (CDN) having been having a tough time recently.

The leader in this space is clearly Akamai Technologies, however even this leader has been seeing its top line revenue remain stagnant at around $206M a QTR over the last year.
The stock which had a meteoric run up in valuation from it’s sub $1 in 2002 to lofty peaks in the $50+ range in 2007 only to languish in the mid $20’s over the last year.

Thanks to CNBC’s Kramer publicity, the stock was the smart and clever (Akamai = smart, clever, knowledgeable in Hawaiian) choice for the right investor during the 2003+ time frame.  The company has survived the “dotcom” blowup and a staggering blow of the loss of one of its well-respected founders in 9/11.  Its management team had beaten the odds and built a strong, fast growing company.

From 2003 to 2009 Akamai has grown its revenues 5X to an impressive $790M .  The majority of this coming from its Media and Entertainment division with the growth of music and video delivery on the net, however a downturn in  2009 CDN pricing has obviously put pressure on top line revenue growth in this sector.

The entry of Limelight networks onto the scene in 2006 seemed to be a thorn in the side of Akamai, who had until this point seen little serious competition in the media delivery space. Limelight’s claim to fame is that it has built a next generation CDN that can deliver Media CDN services at a lower cost due to its “newer” technology.  Despite it’s claims of “newer” technology Limelight network has been embattled in a nasty IP patent lawsuit against Akamai technologies.

Is Limelight’s newer technology really unique and does it give Limelight a cost advantage in the market ?

To answer this question we jumped into the time machine and set the clock back to March 2003 a year where Akamai reports its QTR’s numbers of $36M which is within range of Limelight recently reported $33M Q3 2009 number.

Click Here to see graph
What’ interesting here is that the numbers seem comparable, they certainly do not seem to demonstrate a “major” advantage for Limelight technology, but lets look at this a little closer. Wholesale bandwidth was almost 40X more expensive for Akamai in 2003 than Limelight’s costs today.

So where are the economic advantages to Limelight’s technology?

Limelight claims that its technology advantage is based upon three main premises.

1) Massively provisioned delivery centers

2) Direct connections to access networks

3) Global fibre-optic interconnect

The thought behind this is that there is an economic advantage to centrally locating servers at major peering points such as Equinix and exchanging traffic with major networks at these locations. By doing this it doesn’t need to locate 55,000 servers at the edge of the network as Akamai does.

However, what is sometimes overlooked is Akamai does this in addition to its thousands of servers embedded in networks across the world. Whilst figuring the amount of traffic "peered" by  network is an imprecise science it is possible to look at public peering information and get a least a representative picture of the scale of their public peering.

This chart represents public peering connections as reported on peeringdb.org.

What might surprise many viewers here is that Akamai on the surface actually has more peering than Limelight. Akamai has been a major player in the Internet for longer than Limelight, it has over time developed long standing relationships when it comes to peering and interconnections with major networks.

Lets roll the clock forward and take a look at Akamai’s last QTR where it reported $206M in revenue with $62M in cost of revenue.

It’s fairly clear that Akamai’s margin continues to improve in comparison to Limelight and has of course improved dramatically from its 2003 levels. However, what also seems clear is that Limelight’s cost advantage in this marketplace seems not to be as clear as you would first think.

It is of course unfair to represent  and assume that "peering" is the only economic variable when it comes to CDN efficiency and margin, there are many more, which we will be covering in later reports. Additionally the extent of private peering that Limelight and Akamai has in place is unknown, since it is by its nature "private".

This author consults with leading institutions through GLG

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Analyses are solely the work of the authors and have not been edited or endorsed by GLG.

Contributed by a Member of the GLG Technology, Media & Telecom Councils

Does Limelight have a cost advantage over Akamai ? – GLG News

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